Burberry profits hit by strong currency

United Kingdom

Published: 13 November, 2014

British luxury fashion retailer Burberry Group on November 12 reported a drop in its pretax profit in the first half, after taking a big currency hit from the strength of sterling, and it again warned of pressure to its margins for the full year.

On a reported basis, Burberry posted a pretax profit of £142 million (US$227 million) for the six months to September 30, down from £159 million ($254 million) the prior year, after taking a £31 million ($50 million) hit from the strong pound. On an adjusted basis, its pretax profit was up 6% on an underlying basis, and down 12% at reported rates.

"Looking ahead, in a more difficult external environment, we continue to focus on the things that we can control. Through authentic products, great customer experiences and a culture of continuous improvement and innovation, we remain confident of Burberry's sustained outperformance," said Chief Executive Christopher Bailey in a statement.

Sales continued to be driven by its iconic trench coats and large leather goods, with demand led by Chinese consumers shopping both in China and when travelling abroad.

Revenue rose 14% on an underlying basis in the six months to September 30, to £1.1 billion ($1.76 billion), up from £1.03 billion ($1.65 billion) a year earlier, buoyed by 15% sales growth in retail revenue, and 13% growth in wholesale revenue. It said licensing revenue was down 3% on an underlying basis.

Burberry said demand in the first-half was driven by double-digit sales growth in Asia Pacific and the Americas, with travelling "luxury customers", particularly from Asia, driving that growth, buoyed by the relaunch of its heritage trench coat, leather bags and mens tailoring.

However, last month Burberry warned its investors that trading in its key markets is getting tougher, after it said growth slowed in the second quarter as its key travelling Chinese consumers splurged out less on its clothes and leather goods, and it warned that weak consumer confidence in Europe and slower Asian growth would weigh on its second half.

"We expect some downward pressure on the full year retail/wholesale margin, reflecting the negative impact of exchange rates, a more difficult external environment and continued investment in key initiatives to drive long-term profitable growth," the retailer said on November 12.